Circulars/Notifications - Islamic Banking Department  
 IBD Circular No. 01 of 2016
September 08, 2016

The Presidents/Chief Executive Officers,
All Islamic Banks, Islamic Banking Subsidiaries and
All Conventional Banks having Islamic Banking Branches

Dear Sir,


Exemption from KIBOR as
Benchmark rate for Participatory and Wakalah Modes Based Products


Please refer to BPD Circular No. 1 of 2004 dated 21st January 2004 as amended from time to time wherein all banks have been advised to use KIBOR as benchmark rate.  However, certain exemptions have been given from this requirement vide Para 3 of the said circular.

2.       In this regard, it has been decided that the financing provided on the basis of participatory (Musharakah & Mudarabah) and Wakalah (Agency) modes by the Islamic Banking Institutions (IBIs) shall also be exempted from the requirement of using KIBOR as benchmark rate.

3.       IBIs desirous of availing this exemption shall ensure the following conditions:

  • IBIs shall take adequate measures as per Risk Management Guidelines for Islamic Banking Institutions issued vide IBD Circular No. 1 of 2008 particularly to mitigate equity investment risk in participatory mode based products.

  • For Mudarabah and Musharakah based products, IBIs shall ensure compliance with minimum Shariah requirements issued vide IBD Circular No.02 of 2008 and AAOIFI Shariah Standard No.12 as adopted vide IBD Circular No.01 of 2013 and AAOIFI Shariah Standard No.13 as adopted vide IBD Circular No.01 of 2010.

  • For Wakalah based products, IBIs should use Arabic version of AAOIFI Shariah Standard No. 23 on Agency as guideline in consultation with their Shariah Board.

  • IBIs shall submit the details of Mudarabah, Musharakah and Wakalah based products (new/revised) for delinking with KIBOR benchmark to Islamic Banking Department in line with IBD Circular Letter No.02 of 2013 in the prescribed manner. The submissions shall also include:
    • detailed mechanism for pricing under these modes with proper policies for risk mitigation;

    • amendments in agreements and related documents;

    • approval of IBI’s product by their Shariah Board;

    • criteria for selection of firms/companies with whom IBIs can execute Musharakah or Mudarabah contract.

  • IBIs shall comply with all other regulatory and Shariah related instructions issued by SBP from time to time.

4.         The above instructions shall be applicable with immediate effect. All other instructions on the subject shall remain the same.

5.         Please acknowledge receipt.


Yours truly,


(Ghulam Muhammad)

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